1. Field
Embodiments of the present invention relate generally to financing asset management firms. More specifically, embodiments relate to revenue share interest methods for financing an asset management firm or any other financial services firm.
2. Description of Related Art
Asset management firms, also termed investment management firms, currently lack flexible solutions to their main finance needs. Such needs are often tied to pivotal events during their lifetime, including (1) succession, as founders retire and their equity is recycled; (2) restructuring, as financial investors or lenders are taken out; (3) buyout, as parent companies seek to spin out asset management units, and (4) other liquidity or capital needs for the firm or its owners.
Current finance solutions involve high levels of cultural and consensus risk. For instance, borrowing works in pure finance terms, but has acquired a stigma over the years. Few financiers are available, and the amount of firm value that can be monetized is low. Banks often demand recourse and restrictive covenants, which further interfere with the culture of the borrowers.
Additionally, selling a firm in whole or in part is public, final, and often controversial. A high sale price may be needed to compensate for client disruption and publicity. Moreover, cultural problems with the buyer are often insurmountable, particularly in a bear market. Internal inter-generational battles for value may be very stressful, particularly for smaller firms.
Experiences over time have demonstrated that venture investors rarely pay fair price for equity investments in asset management firms. High required returns for venture investors may force onerous terms from venture investment, usually in the form of “claw-backs” of increases in the value of the target firm. While their participation is sometimes discreet, many investors tarnish rather than enhance a firm's image. Management interaction with venture capitalists is often very uncomfortable, especially during tough economic times.
In the past, revenue sharing techniques have been combined with ownership during the term of the revenue share interest to secure financing for asset management firms. In return for financing the asset management firm, the financing entity immediately gains partial or, in some cases, total ownership of the asset management firm and a perpetual share of the firm's revenue stream. In many situations, such techniques may be fundamentally undesirable and unworkable, because they forfeit autonomy of the asset management firm, giving partial or complete control to the financing entity.